Uber needs only a few more years to start its driverless mobility services.
Meanwhile its million-plus self-employed drivers are providing the company with money, data, and future customers before their jobs get permanently ditched.
The company’s latest valuation, reported by the Wall Street Journal, is $68 billion. Its coffers are full and being used to pay lobbyists, buy artificial intelligence companies and invest heavily in future unmanned services, such as self-driving cars and trucks.
Uber founders ultimately want the company — which is the highest valued startup in the world — to become the Amazon of urban logistics, moving people, goods, and services. All of that without hiring a single driver. They won’t be able to keep drivers as contractors forever, so they’ll replace them with machines. That is their end-game.
The driver trap
What Uber has done, since it started seven years ago, is to lay a sweet trap for people willing to become taxi drivers, but without the means and qualifications to get a license. Initially Uber advertised itself as a “sharing economy” enterprise, allowing any safe driver to augment his/her income by working a few hours a week providing rides.
During the first years of the service, Uber never advertised its platform as a way to a full time job, although it was constantly looking for full time drivers. After the app became popular in many cities and demand for rides soared, Uber started to use sophisticated algorithms to encourage drivers to take more rides and spend more time working for them.
When cities around the world started to ban Uber services, especially the low-cost Uber-X, which competed directly with licensed taxi services, the company was already an unicorn (valued over $1 billion), and getting a lot of attention from investors, including Google. Uber then started to use its money and power to fight regulators, and to attract drivers willing to work full time. They also sent people to take rides on competing services, such as Lyft, to meet drivers and convince them to switch to their platform.
The more drivers, more rides paradox
Back in 2014, in an interview during the Code Conference, Uber CEO Travis Kalanick claimed that the more drivers there are out there, the more reliable the service, the more trips per hour every driver can do. As pick up times get shorter, he argued, drivers will be going from trip to trip without down time. “When trips per hour go up, then pricing can come down, and they can make the same income,” he said. “When pricing comes down you can bring more riders and drivers into the system.” None of this is a selling point for Uber drivers.
During the company’s first three years, Uber drivers were mostly happy with the amount of work and compensation they got from the platform. But then things started to change.
First, Uber became very popular, especially in large US cities, and drivers were requested to take more rides. While this was good for them, it created a system based on demand: Uber wanted to have enough drivers to cover all possible rides, and that meant signing up many more drivers to cover the busy areas and hours, but it also meant having less work for them overall.
Then, in order to boost commitment to the platform, Uber started to send less rides to occasional drivers and more to the ones who worked more hours. With that system, occasional drivers, the ones who had made the company successful initially, were only finding work during rush hour and in places where full time drivers didn’t want to go. In many cases, the potential rides did not justify the expense of going to pick up the passenger.
Finally, Uber started to lower fares to kill the competition, and raised its cut to 20% (the cut for new drivers is even higher). Effectively, Uber drivers are working more hours and earning less, while the company makes more money each time it adds drivers to the system.
While US Uber drivers have reported that the hourly net income of a full-time Uber driver is $16/hour on average (after expenses but before taxes), the situation in Europe is quite different. Not only are gas, maintenance, license and taxes higher, but the competition is also more fierce.
Last week, The Guardian published an interview with Abdurzak Hadi, a Uber driver in London, who has had to collect government benefits to make ends meet. “At the beginning the money was really good because fares were higher,” Mr. Hadi said. “But now they have cut them and flooded the market. Sometimes I have to wait well over an hour for a job. It’s taxpayers like you who are funding Uber at the moment because we are not earning enough and having to go to the government to ask for benefits.”
A recent report by British MP Frank Field, chair of the work and pensions committee, found that Uber drivers are “feeling forced to work extremely long hours, sometimes more than 70 a week, just to make a basic living,” and that Uber “treats its drivers as Victorian-style ‘sweated labour’.”
Hadi also told The Guardian that “he has worked for different [taxi] operators in the past, [but] they have been undercut by Uber so are no longer recruiting, and he has nowhere else to go.”
Uber’s self-driving future
Uber CEO Kalanick was clear, as far back as 2014, about the company’s goal of getting rid of drivers. In his Code Conference interview, he said:
“The reason that Uber could be expensive is that you are not just paying for the car, you are paying for the other dude in the car […] who’s driving… So, when there is no other dude in the car the cost of taking an Uber anywhere becomes cheaper than owning a vehicle, […] bringing the cost of Uber rides below the cost of car ownership for everybody, and then car ownership goes away.”
Kalanick explained it as part of the bigger picture. “It is not just technology for technology’s sake, there is real advancement for how cities work, and how people move in cities, and it is going to change our lives.”
As far as how he would break the news to Uber drivers about losing their jobs down the road, Kalanick said he would say: “Look, this is the way the world is going. If Uber doesn’t go there, it’s not going to exist either way. ”
He is so convinced that self-driving vehicles are the future of the company that he told the audience during this year’s TED talk: “It is a world that is going to exist, and it is going to be a better world.”